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Efficiency-Wage Competition: What Happens as the Number of Players Increases?

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  • Marco Guerrazzi

    (University of Genoa)

Abstract

In this paper, I explore the consequences of extending the number of firms within an efficiency-wage competition setting by showing that the shape of the effort function is crucial in determining key features of the economy. Specifically, when workers are endowed with a concave (sigmoid) effort function, the wage behaviour of firms follows a collusive (competitive) pattern and the symmetric Nash equilibrium is unstable (stable). Moreover, when effort is concave (sigmoid), full employment is characterized by a labour exploitation that increases (decreases) together with the number of productive units required to sustain that allocation. These findings may have intriguing implications for the existence of involuntary unemployment as well as for policies aimed at increasing employment.

Suggested Citation

  • Marco Guerrazzi, 2020. "Efficiency-Wage Competition: What Happens as the Number of Players Increases?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(1), pages 13-35, March.
  • Handle: RePEc:spr:italej:v:6:y:2020:i:1:d:10.1007_s40797-019-00113-z
    DOI: 10.1007/s40797-019-00113-z
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    More about this item

    Keywords

    Efficiency-wage competition; Number of competitors; Effort function; Nash equilibrium; Labour exploitation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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